Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets, late Tuesday reported consolidated financial results for the fourth quarter and full year ended December 31, 2013. In a series of related announcements, the Company also stated that it has acquired a controlling interest in Refinancia, a debt buyer and market share leader in Colombia and Peru, and has entered into an agreement to acquire a controlling interest in Grove, a leader in the purchasing and servicing of Individual Voluntary Arrangements, or IVAs, in the U.K.
“2013 was a watershed year for Encore. We delivered outstanding financial and operational results and expanded into geographies and assets that will make us an even stronger and more diversified company,” said Ken Vecchione, the Company’s President and Chief Executive Officer. “There’s no doubt that Encore is now positioned as one of the leading specialty finance companies anywhere in the world.”
“At Encore, we are maintaining our focus on the disciplined execution of our growth strategies to continue to drive shareholder value. Our core business was strong, attaining record earnings, collections and operating cash flow for the year,” said Vecchione.
Financial Highlights for the Fourth Quarter of 2013:
Gross collections from the portfolio purchasing and recovery business were $351.3 million, a 52% increase over the $230.5 million in the same period of the prior year.
Investment in receivable portfolios in the portfolio purchasing and recovery business was $105.0 million, to purchase $1.032 billion in face value of debt, compared to $153.6 million, to purchase $8.5 billion in face value of debt in the same period of the prior year.
Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $226.8 million, a 62% increase over the $139.6 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, increased to approximately 63% from 59% in the same period of the prior year.
Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time charges, and acquisition and integration related expenses), was $206.0 million, a 53% increase over the $134.7 million in the same period of the prior year.
Total interest expense for the portfolio purchasing and recovery segment increased to $29.7 million, as compared to $6.5 million in the same period of the prior year, reflecting the financing of our recent acquisitions.
Net income from continuing operations was $24.4 million, or $0.87 per fully diluted share, compared to net income from continuing operations of $20.2 million, or $0.79 per fully diluted share, in the same period of the prior year.
Adjusted Income from Continuing Operations (defined as net income from continuing operations excluding income attributable to the non-controlling interest in Cabot, non-cash interest and issuance cost amortization, one-time charges, and acquisition and integration related expenses, all net of tax) was $28.3 million, compared to adjusted income from continuing operations of $20.4 million in the same period of the prior year.
Adjusted for 1,041,000 shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes, Adjusted Income from Continuing Operations rose 31% to $1.05 per fully diluted share, compared to $0.80 per fully diluted share in the same period of the prior year.
Financial Highlights for the full year of 2013:
Gross collections were $1.28 billion, a 35% increase over the $948.1 million in 2012.
Investment in receivable portfolios in the portfolio purchasing and recovery business was $1.205 billion, to purchase $85.0 billion in face value of debt, compared to $562.3 million, to purchase $18.5 billion in face value of debt in 2012.
Revenue from receivables portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $744.9 million, a 37% increase over the $545.4 million in 2012.
Adjusted EBITDA was $784.3 million, a 36% increase over the $577.4 million in 2012.
Net income from continuing operations attributable to Encore was $77.0 million or $2.94 per fully diluted share, compared to $78.6 million or $3.04 per fully diluted share in 2012.
Adjusted Income from Continuing Operations was $98.8 million, compared to adjusted income from continuing operations of $81.3 million in 2012.
Adjusted for 595,000 shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes, Adjusted Income from Continuing Operations was $3.86 per fully diluted share, compared to $3.15 per fully diluted share in 2012.
Total stockholders’ equity per share, excluding the effects of discontinued operations, was $21.98 at December 31, 2013, a 40% increase over $15.71 at December 31, 2012.
“We have significantly expanded our global footprint to the U.K. and Latin America through a series of strategic acquisitions [Cabot in May 2013, Marlin in February 2014, and today’s announcement]. As we continue to evaluate the deployment of capital on a global basis, Encore is well positioned to capitalize on higher returns in a wide variety of world markets.”
To support its growth plans, Encore also announced the expansion of its existing credit facility to $846 million, with an additional $250 million of capacity available under its accordion, bringing the total facility to $1.1 billion.
“The expansion to our facility will provide us with the capital necessary to advance our growth strategies. We appreciate the confidence that our lenders have shown by increasing their commitments, as well as the entrance of a number of new lenders to our facility. With the additional commitments, we have more than $360 million of availability under our facility and an ability to expand that by an additional $250 million,” said Paul Grinberg, Encore’s Chief Financial Officer.
Grinberg announced the completion of Encore’s convertible bond call spread, moving the bond’s strike price from $44.19 to $60.00. “The combination of the call spread and the extension of our credit facility affords management the opportunity and flexibility for future growth prospects,” he said.
The company also announced a new non-executive board chairman, two new board members, and several top executive promotions.
Willem Mesdag was announced as non-executive board chairman of the board and Laura Olle and Richard Srednicki as new directors. Additionally, the company announced the promotion of Ashish Masih, Jim Syran and Manu Rikhye to Executive Vice President positions.
Mesdag will succeed George Lund, who has served as executive chairman since July 2009 and as a director since 2007.
Lund said, “To watch the trajectory of this company over the years has been truly impressive, and I’m proud to have been a part of it. However, the most rewarding part of my Encore board tenure has been the talented team of people with whom I’ve had the chance to work. Because of their strengths, I am confident that Encore will continue to be an industry leader. One of those great people is Will, who started with me as a director seven years ago, and in whose very capable hands I expect the board to thrive.”
Mesdag also joined Encore’s board in 2007. He is the Managing Partner of Red Mountain Capital Partners LLC, an investment advisor. He is also a director of Destination XL, Inc., and Nature’s Sunshine Products, Inc. Before establishing Red Mountain, Mesdag was a partner of Goldman, Sachs & Co. He holds a bachelor’s degree from Northwestern University and a JD from Cornell Law School.
“I’m honored to have this opportunity to lead the Encore board,” said Mesdag. “Ken and the management team have put forward a strong vision for where this company is headed, and I’m excited to work with them to bring about its fullest potential.”
Encore President and Chief Executive Officer Ken Vecchione added, “George has been a tremendous asset to our company, and he has helped guide Encore through incredible periods of growth and expansion. We’re very grateful for his service on the board. As we look ahead, Will is well positioned to help us navigate the tremendous changes that our industry is undergoing and identify opportunities to continue delivering great value to our shareholders.”
Encore is also welcoming two new directors. Laura Olle joins Encore’s board having recently retired from Capital One, where she served as chief enterprise risk officer. She joined Capital One in 1999 as senior vice president of Information Technology Systems Development. Prior to Capital One, Olle served as senior vice president of Information Systems and Services for nine years at Freddie Mac. She has also held key IT positions at the Marriott Corporation and worked as a management consultant at Arthur Young and Company. Olle graduated with honors from the State University of New York at Stony Brook with a bachelor’s degree in Psychology. She received her MBA from the University of Nebraska and completed the Stanford University Executive Program.
Richard Srednicki also joins Encore’s board, having retired from JPMorgan Chase & Co. following seven years as chief executive officer of Chase Card Services and a member of the JPMorgan Chase Operating and Executive Committees. Prior to Chase Card Services, Srednicki was president of the Home Services Division at Sears Roebuck & Co., president of AT&T Universal Card Services, general manager of Citibank Germany, general manager of Citibank Card Services USA and a senior product manager at Colgate Palmolive Company. Until recently, he was a director of the Alliance Bank of Arizona and the Affinion Group of Stanford, CT. Srednicki is a graduate of the Kellogg School of Business at Northwestern University and Ripon College. He also served in the U.S. Army as First Lieutenant Platoon Leader and Company Executive Officer.
“We’re thrilled to have Laura and Richard lend their considerable financial services expertise to our board,” said Mesdag. “They offer unique perspectives as we continue to improve many aspects of our business ranging from its technology platform to critical relationships with issuers.”
Additionally, Encore is aligning three key operations areas to achieve its future growth strategy. That strategy includes growing the U.S. debt purchasing business and subsidiaries, expanding into new geographies, and diversifying into new asset classes. Specifically, Ashish Masih is promoted to Executive Vice President of U.S. Debt Purchasing and Operations. This includes global responsibilities for internal call center operations, analytics, legal collections, marketing, and Asset Acceptance operations. Jim Syran is promoted to Executive Vice President of New Business Integration. In this capacity, he will be responsible for the integration of international and U.S. new businesses. Manu Rikhye is promoted to Executive Vice President of Encore India. In this role, Rikhye will oversee India’s servicing (both Encore and Cabot), corporate development, strategic alliances, and India debt purchasing, scheduled to launch at the end of 2014. All of these individuals report directly to Ken Vecchione.
“We are fortunate to have top talent within the company to provide the necessary leadership as we grow and evolve,” said Vecchione. “Each of these individuals has the proven scope, depth, and tenacity to lead these endeavors and I’m excited about what they can accomplish.”
Encore Capital Group is an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans and purchases delinquent tax liens directly from select taxing authorities. Through its Cabot Credit Management subsidiary in the United Kingdom, the Company is a market-leading acquirer and manager of consumer debt in the United Kingdom and Ireland. Encore’s success and future growth are driven by its sophisticated and widespread use of analytics, its broad investments in data and behavioral science, the significant cost advantages provided by its highly efficient operating model and proven investment strategy, and the Company’s demonstrated commitment to conducting business ethically and in ways that support its consumers’ financial recovery. Headquartered in San Diego, Encore is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com